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The rapid advancement of generative AI is poised to disrupt the creative industry. Amidst the immense excitement for this new technology, its future development and applications in the creative industry hinge crucially upon two copyright issues: 1) the eligibility of AI-generated content for copyright protection (copyrightability); 2) the compensation of creators whose content has been used to train generative AI models (fair use standard). While both issues have ignited heated debates among academics and practitioners, most analysis focuses on their challenges posed to existing copyright doctrines. In this paper, we aim to better understand how these two issues jointly affect the incentives and actions of different stakeholders in the creative industry. By constructing a dynamic game-theoretical model with endogenous content creation and generative AI-model development, we unravel the direct and indirect impacts of copyrightability and fair use standards on AI companies, content creators, and consumers. Our findings highlight the interplay between these two copyright decisions, as well as their interactions with other economic and operational factors (e.g., data availability, AI model quality). Our results alert business leaders to the complexity of navigating the global regulatory environment and underscore the need for policymakers to embrace a dynamic, context-sensitive approach in making regulatory decisions.

(Joint work with Angela Huyue ZHANG, HKU Faculty of Law)